By Belle Lin
International Business Machines' $6.4 billion deal for HashiCorp, announced last week, is aimed at helping businesses automate the use of multiple cloud-computing platforms.
Many IBM customers have shifted to using several cloud platforms rather than one, said Rob Thomas, IBM's chief commercial officer and senior vice president of software, but they have had a hard time getting those platforms set up.
That is why the tech giant sought out HashiCorp, IBM's second-largest acquisition to date. HashiCorp is the market leader in helping companies get started in the cloud, and a lot of IBM customers were already using it, Thomas said.
Managing multiple cloud platforms, plus data centers, has become more challenging for chief information officers as more applications, data and generative AI-based tools come online. Automation of cloud management is critical for corporate information-technology departments, analysts say.
Tim Armandpour, chief technology officer of PagerDuty, which provides tools for digital operations management, said the acquisition of HashiCorp will accelerate companies' ability to operate those complex environments. PagerDuty works with both HashiCorp and IBM, it said.
Started in 2012, San Francisco-based HashiCorp found a following among developers for its open-source flagship software, Terraform, which automates the management of multiple cloud platforms, such as Amazon Web Services and Microsoft Azure.
IBM's $34 billion purchase of open-source software firm Red Hat in 2019, its biggest deal to date, was similarly targeted to gain an advantage against cloud competitors. Like Red Hat, HashiCorp was built on an open-source background, where software is shared freely to use and modify.
For some CIOs, the combination of IBM's cloud-computing platform, HashiCorp and Red Hat could provide an alternative to VMware's virtualization products, said Tim Crawford, CIO strategic adviser at Los Angeles-based IT advisory firm Avoa.
That competition is a good thing for CIOs who are wary of pricing and product changes after one of their software vendors is acquired. Some have been concerned that VMware's prices would increase after its acquisition by Broadcom closed last year.
"This M&A issue is a big one with CIOs, especially with what is recently playing out with Broadcom and VMware," said Suvajit Basu, CIO of Goya Foods.
IBM's purchase of HashiCorp also offers stability for companies concerned about HashiCorp's future, Thomas said. Terraform is a critical part of many IBM clients' strategies, he said, so the deal gives "every CIO in the world a massive amount of confidence to continue on this path."
HashiCorp was valued at over $14 billion at its initial public offering in 2021. Since then, it has struggled to monetize the free, open-source version of its product, even with immense developer adoption, said William Blair analyst Jason Ader. "Most large enterprises use it, but don't pay for it."
Cloud usage has also slowed in recent years as technology chiefs sought to right-size their postpandemic cloud spending, hurting HashiCorp's outlook. That could change as the boom in generative AI has encouraged companies to either consider moving to the cloud, or use multiple cloud platforms, said Armon Dadgar, HashiCorp's co-founder and chief technology officer.
Dadgar said HashiCorp will benefit from IBM's global sales force, helping extend its reach into enterprise IT departments. "IBM is already a vendor to most of the Fortune 2000, which is predominantly who we focus on as our enterprise customer base," he said.
Under Chief Executive Arvind Krishna, appointed in 2020, IBM said it has closed 41 acquisitions. About 80% of them have been in software, according to Thomas.
Analysts say IBM must figure out how to keep the lines between Red Hat and HashiCorp separate. Both Red Hat's Ansible and HashiCorp's Terraform help developers set up and manage their cloud and data centers -- and they are both expanding into areas the other is good at.
Thomas said the company considers Terraform a "day one" solution for getting started in cloud, and Ansible a "day two" solution to keep things running.
The deal is also a way for IBM to lean on HashiCorp's developer following. "Because they have such a big developer community around them, people that just love using the product and they want to work for Hashi, we're going to embrace that," Thomas said.
IBM will invest in research and development for HashiCorp, he added, and could integrate HashiCorp into a platform for clients to automate the management of their private and public clouds.
HashiCorp will retain its name and the Terraform brand. The 2,200-person company will report to Thomas's IBM software group in its own division, and Thomas said IBM isn't planning layoffs.
The deal is expected to close by the end of 2024.
Write to Belle Lin at belle.lin@wsj.com
(END) Dow Jones Newswires
April 29, 2024 17:16 ET (21:16 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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